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Finance Flashcards

(65 cards)

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1
Q

Why does a business need finance?

A

fund expansion, replace worn out assets

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2
Q

What is external source of finance?

A

raising funds from outside the business allowing them to raise larger amounts

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3
Q

What is an internal source of finance?

A

Raising funds within the business meaning they don’t need to pay high interest

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4
Q

What is an example of Internal sources for finance?

A

Owners capital
Retained profit
Selling unwanted assets

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5
Q

What is an example of external sources of finance?

A

Bank overdraft
Trade credit
Crowdfunding

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6
Q

What is retained profit?

A

When the business has worked out their profit they can decide wether to keep it or reinvest in the business

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7
Q

What are the advantages of retained profit?

A

A cheap form of finance
No interest
doesn’t reduce the ownership

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8
Q

What are drawbacks of retained profit?

A

Growth may be slow if it relies on retained profit

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9
Q

What is owners capital?

A

money that a entrepreneur has saved up

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10
Q

What are disadvantages of owners capital?

A

only available to businesses with profit

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11
Q

What are advantages of Owners Capital?

A

Cost effective
No need to repay money
not going to lose control

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12
Q

What is selling unwanted assets?

A

Selling spare land, buildings, machinery that are no longer needed by business

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13
Q

What is a Loan?

A

an amount of money borrowed for a set period with an agreed repayment schedule

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14
Q

What is an advantage to loans?

A

No loss in control
Repayments are spread out

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15
Q

What are disadvantages of loans?

A

May need to risk an asset as security
Interest must be paid on top of the loan

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16
Q

What is a bank overdraft?

A

A short term source of finance that is available to help fund the day to day payments required

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17
Q

What are the disadvantages of Over draft?

A

Interest is charged daily

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18
Q

What is a benefit of Overdraft?

A

can meet short term cash flow issues
business can continue trading
Interest is paid only on the amount borrowed

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19
Q

What does taking on a new partner mean?

A

contributes to finance to the business

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20
Q

What are benefits of taking on a new partner?

A

new fresh ideas and skills

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21
Q

What is a drawback of taking on a new partner?

A

they are entitled to a share of the company

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22
Q

What is a debtor?

A

They owe you

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23
Q

What is a creditor?

A

You owe them

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24
Q

What is a share issue?

A

small businesses can set up as limited companies and raise finance by selling shares

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25
What are advantages of Share Issue?
There is no interest to be paid Cost does not need to be repayed
26
What are Drawbacks of share issue?
loss of control Need to satisfy shareholders expectations
27
What is trade credit?
a firms supplier allowing them to have the goods and pay them back later
28
What are disadvantages of Trade Credit?
Difficult for new businesses The goods must be paid for even if they don't sell Dangers of losing future arrangements if not paid in time
29
What are the benefits of trade credit?
allows business to use the goods before they pay the suppliers Helps when there is a shortage of funds usually interest free
30
How do you calculate revenue?
Selling price per unit x quantity sold
31
What is revenue?
income gained by a business from selling goods and services
32
What are costs?
the spending that occurs to set up and run a business
33
What are fixed costs?
the costs that do not change with output
34
What are variable costs?
costs which change as a result of change in output
35
What is an example of variable costs?
Raw Materials Wages Electric/gas/water
36
What is an example of Fixed Costs?
Rent Business Rates Salaries Insurance
37
What are peace rates?
changes on how much are produced
38
How do you calculate the Total Costs?
Fixed Costs + Variable Costs
39
What is profit?
The amount of money they made from a product
40
How do you calculate profit?
Total Sales - Total Cost
41
What is Gross profit?
the profit made before any operation expenses or interest has been deducted
42
What is Net Profit?
Shows how much the business has left to reinvest
43
How do you calculate Gross Profit?
total revenue - cost of sales
44
How do you calculate Net Profit?
total revenue - cost of sales - other expenses
45
How is a negative number written in finance?
in brackets
46
How do you calculate the gross profit margin?
Gross profit ------------------------------ x100 Sales revenue
47
How can you increase a businesses sales revenue?
Lowering the selling price may increase demand Increasing prices if customers are prepared to pay it Increasing assets of a product
48
What are ways to improve a gross profit margin?
Increase sales revenue lower cost of sales
49
How to calculate the Net Profit Margin?
Net Profit ------------------------- x 100 Sales Revenue
50
What is the Average Rate of Return?
a quantitative method of deciding wether an investment is worthwhile
51
How do you calculate the ARR (Average Rate of Return)
Average Profit from investment ----------------------------------------------------- x100 Cost of the investment
52
How do you calculate the Average Profit from Investment?
Add all numbers Take away from initial investment divide by the number of years
53
What does it mean to break even?
the sales revenue is the same as the total costs
54
How do you find the break even point on a graph?
Where the Sales revenue and Total Costs meet up
55
How do you calculate the Break Even Point?
Fixed Costs -------------------------------------------- (Sales price - Variable costs)
56
What is Cash flow?
the movement of money into and out of a business bank account
57
What is Inflow?
The money that flows into a bank account e.g loans
58
What are OutFlows?
the money that goes out of a bank account e.g wages
59
What is Net Cash Flow?
The difference between the inflows and the outflows
60
What is a cash flow forecast?
a financial document that shows the expected flow of money
61
How do you calculate Total inflows?
investment + sales
62
How do you calculate total outflows?
raw materials + wages + marketing + set up costs
63
How do you calculate Net Cash Flow?
total inflows - total outflows
64
How do you calculate Opening balance?
previous months closing balance carried over
65
How do you calculate Closing Balance?
Opening balance + Cash Flow

Business Studies (6 decks)

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